A friend and client called me yesterday and floated the idea of selling everything and waiting out the storm. Like everyone, his portfolio is down, although he has been relatively well positioned with a large cash/GIC/money market position.

Previously in our red wine discussions, he voiced concerns about the capitalist world coming to an end. When he called, he knew where I stood – feeling stupid, but firm on my view that it's too late to sell – but he wanted to test me and/or see if I'd changed my mind.

I was abrupt with him. I told him it was a dangerous time to do it... the markets see the same things he does... when this mess ends, the recovery could be quick. I reminded him of our conversation the week before when I recommended he put some of his cash to work. If he is going to meet his long-term return objective, he's got to have money in long-term assets, and prices on those assets are now very attractive.  We ended the call quickly. I was frustrated by the question.

Reflecting on it after, I realized I was too sharp with him, friend or no friend. A true steady hand would have been firm, measured and less ornery.

Here's how it should have gone.

I should have reminded him that there are two parts to investing: (1) getting the outlook right and (2) determining how much of that outlook is factored into the market. A lot of doom and gloom is priced into bond and stock prices.

I should have pointed out that market recoveries don't come with flashing lights and email alerts. The first 20-40% will be stealth and will happen in the context of plant closures, rising unemployment and earnings misses.

I should have harkened back to the early part of this year when the market quietly rallied over 25% between mid-January and mid-June.

I should have made him promise me one thing (he is a friend keep in mind) - before he bails out, he must figure out what the signal will be for him to get back in. Market timing requires that you get two decisions right - when to get out and when to buy back. Money market returns won't get him to where he wants to go.

And I should have finished by explaining why I feel so strongly about this. It's because the worst investment disasters I have been witness to have been situations where the person or institution made a bold move at an extreme time which resulted in disastrous long-term results.

As the storm rages on, it's getting harder and harder to hang on. We now look back a month, week or day and tell ourselves we should have done something. In hindsight that is right, although only conditionally so. It will have been correct if we have the gumption to do the second part of the trade – a timely purchase.

I thank my friend for saving our clients and other friends a lot of grief. I promise to be more pleasant and helpful from now on, no matter what the markets are doing.